The Current Legal Status of Psychedelics in the United States

Psychedelic mushrooms on top of potted plant

Are psychedelics legal in the United States?

Psychedelics are far more closely tied with the history of human civilization than most people realize. From Indigenous medicinal traditions to the henbane tea supposedly used by Viking berserkers, they've played an important cultural role in countless societies. Unfortunately, that changed in the late 1930s.

That was when one Albert Hoffman invented a new psychedelic drug known as LSD — an event that brought about an aggressive, fear-based campaign that culminated in psychedelics being made illegal.

Flash forward to today, and there's a growing body of research indicating that not only are the harmful effects of psychedelics largely overblown, but they also have significant potential benefits in the treatment of several mental health disorders. This, in turn, has resulted in their decriminalization — and in some cases, legalization — by several states.

This slow march towards widespread acceptance lends the psychedelics sector a great deal of investment potential — but only for those who fully understand the industry's unique landscape and challenges.

Legalization vs. decriminalization

Before we discuss the specifics of the American psychedelics landscapes, it's important that we first establish the difference between decriminalization and legalization. Although the two may seem similar at first glance, they're actually very different concepts. And both terms have a great deal of relevance in the context of psychedelics.

Decriminalization of a drug means there are no longer strict criminal penalties associated with its use. With government approval, certain businesses may employ the drug for pre-established use cases. However, the drug is still illegal in most contexts, typically tied to a civil penalty such as a fine rather than criminal charges.

Many believe that decriminalization is the first step on the path to full legalization, and legalization is exactly what it sounds like. When a drug is legalized, it can be used and sold freely, albeit with certain requirements. Alcohol, for instance, is legal, but only permissible for individuals over the age of 21.

The legal status of psychedelics in the US

Within the US, psychedelic drugs have a long way to go before they gain widespread acceptance. As of July 2022, they are still completely illegal in nearly every state, with a few notable exceptions. At the federal level, meanwhile, all major psychedelic drugs beyond Ketamine are categorized as Schedule I by the US Food and Drug Administration.

This means that they are viewed as having no currently accepted medical use and a high potential for abuse. This puts drugs like ibogaine and psilocybin in the same class as heroin and methamphetamines.

Rather promisingly, however, clinical trials to challenge this classification are ongoing. These studies are many and varied, and largely explore the potential of psychedelic drugs to treat post traumatic stress order, depression and addiction.

As you might expect, this means that for the immediate future, legal and reputable options for psychedelic operations are severely limited.

What's holding psychedelics back?

Outdated legislation aside, the most significant barrier to widespread adoption of psychedelics is societal. The drugs are still heavily stigmatized in many circles due to years of bad press and fear mongering. This stigma unfortunately even bled over into scientific research, with many studies on the purported harmful effects of drugs like MDMA being identified as methodologically flawed, overly biased or intellectually dishonest.

There's a positive note here, however. Held back by outmoded beliefs, many investors are still unwilling to get involved in psychedelics. This means that for those who are willing to take the plunge, the market presents even more of an opportunity.

Societal opinion about psychedelics is gradually shifting. As more research emerges about their beneficial effects, the decades-old perception of them as dangerous is fading. That is to say that although the market is currently being held back by social stigma, this will not be the case for much longer — by 2027, the psychedelic industry is projected to be worth roughly $6.85 billion.

A change is coming, and one state in particular is leading the charge.

Oregon, head and shoulders above its peers

In November 2020, Oregon became the first state to legalize and regulate psilocybin, approving it for use in supervised mental health treatment settings. The legislation that made this possible, known as Measure 109, will officially come into effect January 2023. Oregon also implemented a second bill, measure 110 which classified small scale drug possession as a civil violation with a $100 fine, waived if the individual agrees to seek treatment.

Since then, several other states have opted to follow Oregon's lead. Psychedelics use currently carries reduced penalties in Colorado, New Jersey and Washington, with several major cities specifically identifying the drugs as the lowest priority for law enforcement. Utah and Texas, meanwhile, are both studying the drug for medical use. Finally, decriminalization bills have been introduced for consideration in Iowa, Kansas, Oklahoma, Missouri, Michigan, Georgia, Florida, Maryland, Pennsylvania, New York, Vermont, Rhode Island, Hawaii and Massachusetts.

California was also exploring decriminalization and legalization, but the legislation was put on hold following the decision that more time was needed to build a case for reform. Ohio, Virginia, West Virginia and Maine are all in a similar boat.

Psychedelics investments in Oregon

Oregon's position at the forefront of psychedelics adoption has created what some have termed a psychedelic gold rush in the state, with multiple international entrepreneurs rushing to stake their claim in what is certain to be a fast-growing sector.

The Synthesis Institute, for instance, has already formed several LLCs and purchased property in the state in preparation for the coming shift. Billing itself as a global leader in modern psychedelics research, education and training, the company has to date hosted psychedelic retreats for more than 750 people.

Red Light Holland (CSE:TRIP), meanwhile, believes that psilocybin has the potential to become a US$1 billion dollar industry in Oregon alone. Based in the Netherlands, Red Light Holland makes branded microdosing truffles. It also maintains several wholesale and production subsidiaries.

Field Trip Health (TSX:FTHW) is also eyeing the state, with plans to open up at least one treatment center there. Currently valued at roughly C$46 million, the Canadian company operates roughly one dozen ketamine-assisted therapy centers throughout Canada and the US.

It's not just foreign investors being drawn to Oregon's burgeoning new market, however. Companies such as Silo Wellness (CSE:SILO) are also well-positioned to take up the opportunity this new legislation presents. Founded in 2018, Silo Wellness hosts all-inclusive luxury psychedelic retreats in Jamaica, and plans to offer similar services in Oregon as soon as it is legal to do so.

The main benefit of investing in a company like Silo as opposed to a foreign company is that the business already has boots on the ground in Oregon — an established presence that will allow it to spin itself up far more quickly than overseas competition.

Takeaway

More and more businesses today are beginning to recognize the very real potential of drugs like MDMA and psilocybin, from both a clinical and therapeutic standpoint. Where there's treatment potential, there's investment potential. If there is anything to be learned from cannabis, legalization of psilocybin has the potential to become a crowded industry in the near future.

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